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Five Things You Need to Know: OPEC Zarqawi, Lifestyles of the Old and Leveraged, Energy Mania


What you need to know (and what it means)!


Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. US Forces Kill Zarqawi

Crude oil tumbled as much as 1.8% this morning following news a U.S. airstrike killed Al-Qaeda terrorist Abu Musab al-Zarqawi.

  • Al Qaeda's leader in Iraq, Abu Musab al-Zarqawi, was killed in an American air strike on an isolated safe house north of Baghdad this morning.
  • Headlines about the killing read:
    Oil price falls as al-Zarqawi killed, Qatar
  • Minyanville has not been able to determine the extent of Zarqawi's crude oil reserves.
  • "Don't be a wise guy," you say. "Zarqawi has been a major force in Iraqi crude oil production sabotage, according to the news."
  • True, Zarqawi has no oil reserves. He was simply a terrorist. But is there really any causal relationship between his capture and crude oil prices?
  • Tuesday, before the air strike, Southern Oil director Hashem Al Hashemi told AFX News that Iraq's crude oil production has reached 1.95 mln bpd, 15% more than the average output for the prior 10 months.
  • Iraq accounts for about 7% of total OPEC crude oil production.
  • On a related note, movie actor Bruce Willis may now be $1 million poorer. Last November Willis offered a $1 million bounty for the capture or killing of Osama Bin Laden or Zarqawi.

2. Lifestyles of the Old and Leveraged

A new retirement index produced by Boston College shows that as many as 43% of American working-age households may be "at risk" of being unable to maintain their pre-retirement lifestyles.

  • The Center for Retirement Research at Boston College has developed a new retirement index called the National Retirement Risk Index.
  • The Index measures the share of working-age households who are at risk of being unable to maintain their pre-retirement standard of living in retirement.
  • According to the index, 43% of American working-age households are at risk of having inadequate retirement income.
  • That level is up from 38% in 2001. In 1983 it was 31%.
  • Ok, that's the nuts and bolts, but here's the kicker:
    "The Index's base case scenario assumes that households retire at 65, annuitize their financial assets, and tap their housing equity through a reverse mortgage."
  • Whoa. Stop right there. Say that again.
    "The Index's base case scenario assumes that households retire at 65, annuitize their financial assets, and tap their housing equity through a reverse mortgage."
  • Sweet mother of Moses on a moped, are you suggesting Americans at age 65 take out reverse mortgages to maintain their pre-retirement standards of living!?!
  • "If, instead, households retired at age 63, did not annuitize, and did not take out a reverse mortgage, the share at risk would soar from 43 percent under the Index base case to 66 percent."
  • This can mean only one thing:
    "Welcome to WalMart."

3. Greenspan Issues Stern Warning... About Oil

Clearly unaware of the pending killing of Abu Musab al-Zarqawi and subsequent decline in the price of crude oil, former Fed Chairman Alan Greenspan yesterday said he was skeptical oil producers could pump enough crude oil to meet future demand.

  • Testifying before the Senate Foreign Relations Committee yesterday, Greenspan said it appears the implicit tax on consumer of higher oil prices may finally be having an impact.
  • Greenspan said a continued rise in the price of crude could produce a "significant contraction" in the U.S. economy.
  • "The balance of world oil supply and demand has become so precarious that even small acts of sabotage or local insurrection have a significant impact on oil prices," he added.
  • He also warned that the ability of corn-based ethanol to replace gasoline is "modest at best."
  • The one thing that stood out to us in his testimony , however, was this nugget: "Oil consumers no longer determine the price of oil through demand vs. supply. Now investors set the price of oil through purchasing futures contracts."

4. Risk Reduction

A survey of 1,000 decision-making" executives polled by Ernst & Young shows a renewed preference for "traditionally low risk" locations for foreign direct investment.

  • According to the survey, 68% of respondents cited Western Europe among their top three investment areas in 2006, up 5 points from 2005.
  • Central Europe and Western Europe were cited by 52%.
  • China this year was 11 points lower than 2005, and India fared worse as well.
  • Even among questions related to call center specific preferences, India, which remained the leader, came in at 14% compared to last year's 22%.
  • The Ernst & Young survey is based on actual foreign projects not investment inflows.

5. Energy Drink Mania, Par for the Course

The market for so-called energy drinks fueled by sugar and caffeine is up 75% since last year, according to the Christian Science Monitor.

  • The $3.5 billion energy-beverage market is 6 percent of the nonalcoholic beverage industry, which includes soft drinks, according to the CSM.
  • Many of the energy-drinks today carry messages that deal with performance enhancement, added vitality, and even weight loss, which irks some health care professionals.
  • What is driving the sale of energy drinks? The CSM asked John Sicher, publisher of the trade publication Beverage Digest:
    "[With energy drinks], there's an immediate gratification because you can feel it."
  • Bingo, there you go: instant gratification. The increased consumption of energy drinks strikes us as a near-perfect barometer of social mood and, by extension, financial markets.
  • Minyanville Professor Scott Reamer told us, "Nothing better than a product one can purchase to allay the physical and emotional manifestations of the growing bear trend: listlessness, lethargy, etc. But in terms of risk-seeking, this type of energy drink is, in actuality, (as the 'health professionals' lament) quite risky and in the end will achieve the very thing it seeks to prevent: lethargy in mind and body."
  • The market for energy drinks is expected to top $10 billion by 2010. Below are a few of the energy drinks Minyanville has learned may debut later this year:
    - Vanilla Gasp
    - 24/7 Up
    - Jitter Juice
    - XXXtreme Twitch
    - Diet Cherry Hyperventilade
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